Promoted and Sold Software to Restaurants resulting in more than $3.4 Million Tax Loss

An Everett, Washington man who worked for a Canadian company that sells point of sale computer software, pleaded guilty today to wire fraud and conspiracy to defraud the government for his role in a scheme to sell ‘Tax Zapper’ software, announced U.S. Attorney Annette L. Hayes. JOHN YIN, 66, pleaded guilty in U.S. District Court in Seattle, admitting that he promoted and sold a revenue suppression software that allowed restaurants to underreport their sales and illegally lower their tax bills. The software – sometimes called a “Zapper” program - resulted in a loss amount of more than $3.4 million.

“This defendant sold businesses a high tech tool that had only one purpose – to give businesses a leg up by cheating the taxman,” said U. S. Attorney Annette L. Hayes. “In addition, by not paying their fair share of taxes, they cheated state and federal programs, and victimized workers whose employment and social security taxes went unpaid as well. Partnering with the Washington State Attorney General’s Office, we will ensure that those who are responsible for this conduct will be held to account.”

“Using illegal software to avoid tax obligations harms both taxpayers and businesses that compete fairly and play by the rules,” said Attorney General Bob Ferguson. “I’m proud to work with U.S. Attorney Hayes to stamp out this fraud.” Ferguson’s office is pursuing a separate criminal case against a Bellevue restauranteur accused of using zapper software to pocket nearly $400,000 in state sales taxes.

According to the charging information and the plea agreement, YIN was a salesman for Profitek, a British Columbia, Canada company selling point of sale (POS) systems for hospitality and retail industries. In addition to its Canadian headquarters, the Company has offices in China and a growing dealership network across North America. The Company designed, or had designed, and marketed, sold and supported revenue suppression software (RSS) as an add-on to its Profitek point of sale software. This RSS functioned only with the Profitek POS software.

Point of Sale software creates a database of transactions that is used to calculate a business’s tax obligations. Revenue suppression software (RSS) is used to modify a business’ POS database for the purpose of tax evasion. When executed, the RSS program deletes all or some of the business’s cash transactions, and then reconciles the books of the business. The result is business records that appear to be complete and accurate but, in fact, are false and fraudulent in that they show less than total income earned.

JOHN YIN successfully sold the POS software, and assisted in the widespread distribution of the Zapper software, to dozens of customers over the course of several years.

Between 2010 and 2013, eight different restaurants in the Seattle area used the software and underpaid their state and federal taxes by amounts ranging from a low of just over $145,000 to more than $910,000. When the restaurant owner who underpaid taxes by more than $900,000 was confronted about using the tax zapper software she admitted she used the unreported cash to pay some employees in cash. In addition, she did not withhold mandatory social security or Medicare taxes for these employees.

“Revenue Suppression Software represents the modern iteration of old-fashioned skimming,” said Special Agent in Charge Darrell Waldon of IRS Criminal Investigation. “The IRS has always pursued those who attempt to circumvent their tax obligations, and this case is no exception. These so-called Zapper programs have caught the eye of diligent IRS Special Agents and our law enforcement partners, and together we will continue to prosecute those who threaten the integrity and equity of our nation’s tax system.”

“The publicity around “zapper” software cases sends the clear message that state and federal agencies are serious about this type of fraud,” said Vikki Smith, director of the Washington State Department of Revenue. “We will continue our work with the IRS and the state Attorney General’s office to make sure retail sales tax dollars stolen in this type of scheme are recovered and used as intended – to fund public services.”

Wire fraud is punishable by up to 20 years in prison and a $250,000 fine. Conspiracy to defraud the government is punishable by up to five years in prison and a $250,000 fine. YIN has agreed to pay $3,445,589 in restitution to the United States and Washington State and also agreed to pay for the costs of prosecution. Sentencing is scheduled in front of U. S. District Judge Richard A. Jones on February 24, 2017.

The case was investigated by the Internal Revenue Service Criminal Investigation (IRS-CI), the Washington State Department of Revenue with special assistance from the Washington State Attorney General’s Office.

The case is being prosecuted by Assistant United States Attorney Susan Roe.